Affordable Care Act Part 1: Impact on Counties as Employers · ACA Mandates a FLOOR for Health Insurance Extends access . to health insurance coverage to all citizens by imposing

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Affordable Care Act Part 1: Impact on Counties as Employers

November 22, 2013

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Webinar Recording and Evaluation Survey

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Today’s Speakers: David Kester Director, Human Resources & Risk Management Harris County, Texas Rick Johnson Senior Vice President National Public Sector Health Practice Leader Segal Consulting

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How many people are attending this webinar from your computer?

a. 1

b. 2

c. 3

d. 4

e. 5 or more

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Regarding the classification of full-time and part-time employees, is your county

a. Changing how full-time and part-time employees are defined

b. Considering changing how full-time and part-time employees are defined

c. Waiting to see what happens

d. Not sure

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What will be the cost impact of implementation on your county health plan in 2014?

a. Less than 3%

b. 3-5%

c. More than 5%

d. Not Sure

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Disclaimer

• The information provided during this webinar is for informational purposes only and does not constitute legal advice.

• Counties should consult legal counsel for detailed information about how certain provisions and related regulations should be interpreted and applied to their plans specifically.

Health Care Legislation Update

Signed into law March 2010.

Supreme Court upheld portions of the law June 28, 2012.

Ongoing Regulations and Guidance have been issued.

Changes in County’s group health plan to comply as required.

Effective March 1, 2012 Harris County lost its “grandfathered” status.

The Affordable Care Act (ACA) Today is Tomorrow

ACA Where we’ve been

Increased taxes for Tanning Services, Pharmaceuticals and Medical Device Manufacturers.

Applied for the Early Retiree Reinsurance Program…funds exhausted in early 2012.

Limits and limited reimbursement of over-the-counter medicine from Flexible Spending Accounts.

“Adult children” ages 19-26 covered by plan regardless of student or marital status.

Preventive care covered at 100%.

Expanded preventative care

benefits. Additional communication

information included in enrollment materials. Appeals process expanded for

internal claims and new external review requirements. Value of benefits reported on W-2’s.

Long-Term Care (CLASS Act) was

repealed.

ACA Where we’ve been

(More) Fees, Taxes and the Opening of the Exchanges

Comparative Effectiveness Fee of $1 per covered life per year in 2013 increasing to $2 for 2014

Marketplace Availability Model Notice to all employees by October 1, 2013

Marketplace exchanges open enrollment began October 1, 2013

Exchange coverage and individual compliance begins…..

ACA 2014-2015

Annual Health Insurance Provider Fee (Tax) effective January 1, 2014 for Harris County’s dental and vision plans

Limit effective dates for coverage of newly hired eligible employees to 90 days or less beginning March 1, 2014

Coverage for expenses related to approved clinical trials Transitional Reinsurance Fee, effective from January 1, 2014 through

December 31, 2016. For 2014, the contribution will be $5.25 per covered member per month

Maximum out of pocket limits for “essential health benefits” (Medical

only for 2014; prescription drugs added in 2015)

“Employer Mandate” Delay

Must offer minimum essential coverage that is affordable as defined by the ACA

Must identify and offer health coverage to all full-time employees as defined by the ACA

Full-time (FT)= any employee who regularly works 30 or more hours per week, or averages 130 hours per month (use “look back period” to determine eligibility)

ACA 2014 and Beyond

“Essential” health benefits definitions will continue to be modified

Annual reporting requirement for employers and self-insured plans recently delayed until 2015

An excise tax (40% of incremental costs) is imposed on employer-sponsored health plans in 2018.

What does all this mean?

Incremental cost increase of claims due to mandated eligibility and coverage requirements Expansion of coverage for “essential” benefits (as

defined by the DHHS)

Incremental cost increases due to fees and taxes imposed on insurers, medical device manufacturers and pharmaceuticals

ACA Implications on County Plan

Medical Cost Drivers • Uncompensated Care • Medicare Reimbursement Rates • Advancement in Treatment Options

and Technology • Waste and Fraud • Pre-Mature Babies and Aging

Population • Increased Life Span • Prescription Drugs • Chronic and “New” Illnesses • Legislative Changes/ACA • Defensive Medicine • Physician Ownership of Facilities • Utilization (Demand) • Catastrophic (and large) claims

Copyright © 2013 by The Segal Group, Inc. All rights reserved.

NACo Webinar: Affordable Care Act Part I – Impact on Counties as Employers Presented by:

J. Richard Johnson Senior Vice President, Public Sector Health Practice Leader [email protected] November 22, 2013

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The Playing Field Has Changed! Why it’s different now and for the future

1. Health Care Reform places new and increasingly more stringent requirements onto public sector health plans

2. The Federal Government is now a player in every state and local jurisdiction health plan.

3. Medicaid will now impact more employees and dependents

4. State and local government’s traditional role in providing “hire to grave” health benefits for active and retired employees is changing

5. Public employers will have to make possibly significant changes to their health plan eligibility and/or workforce composition

6. Public plans have a new competitor (state health insurance exchanges) that may be more cost effective for some groups

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ACA Mandates a FLOOR for Health Insurance Extends access to health insurance coverage to all citizens by

imposing an individual mandate: have health coverage or pay a tax penalty Upheld by Supreme Court 6/28/12 as a valid tax

Imposes coverage and minimum benefit mandates and reporting requirements on insurers and employers sponsoring health benefits

Expands Medicaid eligibility • To individuals under 65 with income under 133% of Federal Poverty Level (FPL) • Increases Medicaid funding to states that expand coverage • Allows CMS to withhold Medicaid funding to states that don’t

expand Overturned by Supreme Court 6/28/12

Expands certain Medicare benefits

Creates new virtual marketplaces (exchanges) to buy coverage • Provides subsidies for low-income individuals to buy Exchange coverage

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Individual Mandate - 2014 The Individual

Must be covered under minimum essential health coverage (including employer-sponsored coverage) OR pay a penalty • Penalty is the greater of:

– 2014: $95 per adult or 1% of income – 2015: $325 per adult or 2% of income – 2016: $695 per adult (indexed for 2017, etc.) or 2.5% of income

• No penalty if: – Cost of coverage exceeds 8% of household income – Coverage lapses of 3 months or less – Income is below income tax filing threshold – Native American

Individual penalty accounted for as an additional amount of federal tax owed

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Employer Shared Responsibility Penalty

Purpose: Encourage large employers to continue providing health coverage

Applies to large employers with 50 or more full-time employee equivalents

Full time = 30 or more hours of service per week (130 hours per month)

Penalty triggered when a full-time employee receives a federal subsidy in a state Exchange

Guidance provides safe harbor for determining whether variable hour employees and seasonal employees are treated as full-time employees under the ACA

Cannot retaliate against employees for subsidies

Effective: January 1, 2014 Delayed to 2015

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The 4980H(a) and (b) Penalties – The Details (a) If a large employer does not offer “minimum essential coverage” to at least 95% of its full-time employees (and dependent children under age 26) and if one full-time employee receives subsidized coverage on the Exchange:

Penalty is $2,000 (annualized) times the total # of full-time employees (minus first 30 workers)

(b) If a large employer does offer coverage to 95% of its full-time employees (and their dependent children under 26), but the coverage is either: • Not affordable (premium for self-only coverage is 9.5% or

more of household income), or • Not of minimum value (actuarial value is less than 60%)

and one full-time employee receives federally subsidized coverage in the Exchange

Penalty is $3,000 (annualized) times the # of full-time employees getting a tax credit in an Exchange (subject to a penalty maximum)

Safe harbor allows employer to use employee’s gross taxable wages (W-2, Box 1) without pre-tax contributions and deferrals

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Safe Harbors for Counting Full-Time Employees Voluntary safe harbors for employers to determine whether employees work

full time for penalty purposes. Four categories: Variable Hour Employees Seasonal Employees Ongoing Employees New Employees

Do not need to use safe harbors if it is reasonably clear which employees have 30 or more hours of service per week (130 hours per month)

How it works: • Count hours of service during

measurement period • Lock in status as full-time

employee (or not) for associated stability period

Employer can set length of measurement period, but must use a common period for all similar employees

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Time to Rethink Eligibility for the Plan How will you handle part time and seasonal employees and those

who will now be considered “full time” under ACA who could trigger a Shared Responsibility Penalty?

Acquired discrimination due to change in the laws – need to adjust policies and practice to new rules and new reality

Practical Decisions

What about the people you hire in the summer to mow grass or teach in parks and recreation programs?

How will you handle part-time employees who work two positions?

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Pre-Medicare Retirees and the Health Exchange

Retirees not yet eligible for Medicare may: • Purchase coverage on the state exchanges even if eligible for employer plan

coverage • Qualify for Medicaid and/or federal exchange subsidies due to limited (retirement

benefit) income

Most expensive group to insure, have limited income

Exchange premiums for early retirees may be more attractive than employer plan

No employer “shared responsibility penalty” for retirees

Reduced GASB OPEB liability if early retirees go to the exchange

Question: Should public employers encourage pre-65 retirees to go to the exchange?

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40% Excise Tax on High Cost Health Plans (2018)

Threshold $10,200/$27,500 indexed to the CPI-U • Based on total cost of coverage – Employer + Employee cost • Thresholds increased in 2018 if CBO projections incorrect • No regional adjustment for cost of medical care

Increased thresholds ($11,850/$30,950) for high-risk professions and retirees • Includes public safety, construction, etc.

Appears to exclude most dental and vision; includes health FSAs and HRAs

Tax payable by plan administrator

No guidance yet!

ACA Imposes a CEILING on Tax Free Benefits

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The 40% Excise Tax An Example

Illustrative county health benefit plan

• Employee only: $450

• EE + Spouse: $950

• EE + Children: $750

• EE + Family: $1,500

Current Monthly Rates

• Employee only: 500

• EE + Spouse: 800

• EE + Children: 300

• EE + Family: 2,400

• Total employees: 4,000

• No retirees assumed

Current Enrollment

• 92% (Gold tier equivalent)

Minimum Value

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10.4%

9.6% 8.9% 9.7% 9.5%

7.6% 7.5%

7.3%

8.8%

7.9%

11.1% 10.0%

9.5% 9.4% 9.7%

8.3%

7.8%

8.4%

9.3%

8.4%

10.6%

10.2% 9.8% 9.7%

10.2%

8.7%

8.0%

6.7%

8.2%

7.2%

8.4%

7.2% 7.0%

7.7%

4.0% 3.6%

4.5% 3.0%

5.8%

3.3%

10.5%

9.5%

7.9% 7.4%

7.9%

6.4%

5.0% 5.5%

6.4%

6.3% 5.0%

5.1% 5.0% 5.5% 4.7%

3.0% 3.1% 2.6%

3.5%

3.4%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PPO (without Rx) POS (without Rx) HMO (without Rx) MA HMO Rx DPO

Ten-Year Summary of Selected Medical, Prescription Drug Carve-Out and Dental Trends: 2005 – 2012 Actual and 2013 and 2014 Projected1

Source: 2014 Segal Health Plan Cost Trend Survey 1 All trends are illustrated for actives and retirees under age 65, except for MA HMOs. 2 Prescription drug trend data for 2005 – 2007 only reflects retail. For 2008 – 2014, prescription drug retail and mail order delivery channels are combined.

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Projection of The Excise Tax

Single Coverage Per Employee Excise Tax

Projected Expected Projected Expected Projected Expected Calendar Tax Free Single Cost Annual Single Cost Annual Single Cost Annual

Year Threshold @6.0% Trend Excise Tax @8.0% Trend Excise Tax @10.0% Trend Excise Tax 2018 $10,200 $7,226 $0 $7,934 $0 $8,697 $0 2019 $10,550 $7,660 $0 $8,569 $0 $9,566 $0 2020 $10,800 $8,120 $0 $9,255 $0 $10,523 $0 2021 $11,050 $8,607 $0 $9,995 $0 $11,575 $210 2022 $11,350 $9,123 $0 $10,795 $0 $12,733 $553

Aggregate Excise Tax Projected Expected Projected Expected Projected Expected

Calendar Single Cost Annual Single Cost Annual Single Cost Annual Year Enrollment @6.0% Trend Excise Tax @8.0% Trend Excise Tax @10.0% Trend Excise Tax

2018 500 $3,613,209 $0 $3,967,186 $0 $4,348,377 $0 2019 500 $3,830,002 $0 $4,284,561 $0 $4,783,215 $0 2020 500 $4,059,802 $0 $4,627,326 $0 $5,261,536 $0 2021 500 $4,303,390 $0 $4,997,512 $0 $5,787,690 $105,076 2022 500 $4,561,593 $0 $5,397,312 $0 $6,366,459 $276,584

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Projection of The Excise Tax

Family Coverage Per Employee Excise Tax

Projected Expected Projected Expected Projected Expected Calendar Tax Free Family Cost Annual Family Cost Annual Family Cost Annual

Year Threshold @6.0% Trend Excise Tax @8.0% Trend Excise Tax @10.0% Trend Excise Tax 2018 $27,500 $24,088 $0 $26,448 $0 $28,989 $596 2019 $28,450 $25,533 $0 $28,564 $45 $31,888 $1,375 2020 $29,150 $27,065 $0 $30,849 $680 $35,077 $2,371 2021 $29,900 $28,689 $0 $33,317 $1,367 $38,585 $3,474 2022 $30,650 $30,411 $0 $35,982 $2,133 $42,443 $4,717

Aggregate Excise Tax Projected Expected Projected Expected Projected Expected

Calendar Family Cost Annual Family Cost Annual Family Cost Annual Year Enrollment @6.0% Trend Excise Tax @8.0% Trend Excise Tax @10.0% Trend Excise Tax

2018 2,400 $57,811,345 $0 $63,474,973 $0 $69,574,032 $1,429,613 2019 2,400 $61,280,026 $0 $68,552,971 $109,188 $76,531,435 $3,300,574 2020 2,400 $64,956,827 $0 $74,037,208 $1,630,883 $84,184,579 $5,689,831 2021 2,400 $68,854,237 $0 $79,960,185 $3,280,074 $92,603,037 $8,337,215 2022 2,400 $72,985,491 $0 $86,357,000 $5,118,800 $101,863,340 $11,321,336

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Observations for this illustrative plan: Within a relatively narrow range of trend rates, excise tax exposure can

range from zero to over $11 million by 2022 • At 10% trend, excise tax represents 8.5% of plan costs in 2022 Choice of tiering factors could affect excise tax amounts Plan costs must include FSA and HRA contributions

Projection of The Excise Tax Total All Coverage Tiers Aggregate Excise Tax

Projected Expected Projected Expected Projected Expected Calendar Total Cost Annual Total Cost Annual Total Cost Annual

Year Enrollment @6.0% Trend Excise Tax @8.0% Trend Excise Tax @10.0% Trend Excise Tax

2018 4,000 $77,242,380 $0 $84,809,617 $0 $92,958,637 $1,429,613 2019 4,000 $81,876,923 $0 $91,594,386 $109,188 $102,254,501 $3,300,574 2020 4,000 $86,789,539 $0 $98,921,937 $1,630,883 $112,479,951 $5,689,831 2021 4,000 $91,996,911 $0 $106,835,692 $3,280,074 $123,727,946 $8,442,291 2022 4,000 $97,516,726 $0 $115,382,547 $5,118,800 $136,100,741 $11,597,920

There is no official guidance yet on how to calculate plan costs for purposes of excise tax.

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What County Plan Sponsors Should Do Now Understand Your Organization • What role do benefits play in attracting and retaining

talent? • How do employees value their health benefits as part

of the overall compensation package?

Understand and Manage The Cost • Encourage and reward healthy behaviors that reduce

future benefit costs • Renegotiate vendor contracts to capture savings • Explore alternative program designs to encourage

appropriate utilization • For Medicare retirees: MAPDs, EGWPs and Part D

plans

Understand Your Options • Maintain your sponsored group plan or provide benefits through an exchange? • Update your benefit strategy to recognize the developing state health insurance

exchange environment

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And Don’t Forget the Environmental Factors The population is aging (Older = Sicker = Costlier)

The cost of health care keeps rising faster than inflation

Private employers will likely continue to cut or curtail employer sponsored and subsidized health benefits, making public employers even more attractive

Public employees are likely to work longer just to keep subsidized health benefits (impact on budgets and retirement plan costs?)

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Some Predictions: In 10 Years or Less… A majority of employees in the workforce will be covered by health

insurance through an exchange.

Many persons applying for work with public jurisdictions will have been covered by health insurance through an exchange either individually or in their previous private sector employment.

New hires will expect to be able to keep their exchange coverage and merely change the source of funding.

Employer health benefit subsidies will be on a defined contribution basis (fixed dollar amount or fixed percent of pay)

Public sector employers will become health plan facilitators, not health plan sponsors; health insurance will no longer be an employer risk.

To gain a competitive employment edge, private employers will offer supplemental policies to the exchange to protect the employee from gaps. Public employers may have to follow suit.

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Health Reform Resources

On the Segal Website:

Health Care Reform Timeline Health Care Reform Insights Stat! Bulletins Public Sector Letters Webinar recordings and slides

www.segalco.com/publications-and-resources/health-care-reform/

Health Reform Resources: http://www.segalco.com/health-care-reform/

Rick Johnson Senior Vice President [email protected] 212.833.6470 www.segalco.com

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NACo Resources

• Health Reform Implementation Site

– www.naco.org/healthreformimplement

– Here you can find:

• Counties as Employers Toolkit (Updated) at www.naco.org/healthreformtoolkit

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Type your question into the questions box and the moderator will read the question on your behalf during the Q&A session. If we are unable to answer all of the questions during the Q&A session, we will send you the questions and answers in an email.

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Upcoming Webinars • Affordable Care Act Part 2: Impact on Self-funded

Employers o Counties with self-funded plans can no longer opt

out of certain requirements of Title XXVII of the Public Health Service Act. In Part 2, the impact of the law on self-funded plans and the challenges and opportunities for self-funded plans will be discussed.

o When: Thursday, December 12th, 2pm to 3:15pm ET

• Please contact Emmanuelle St. Jean at 202.942.4267 or [email protected] for more information.

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2014 Healthy Counties Forum

What: This forum will focus on using Accountable Care Communities (ACCs) to mobilize and advance healthy changes in counties. An ACC is a model of care that permits counties to align and prioritize the needs of their residents and employees to prevent disease and reduce health care costs.

When: January 30-31, 2014

Where: San Diego County, CA

www.naco.org/healthycountiesinitiative

Please contact Emmanuelle St. Jean, MPH, Program Manager, 202.942.4267 or [email protected]